There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Wesdome Gold Mines' (TSE:WDO) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Wesdome Gold Mines is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = CA$281m ÷ (CA$817m - CA$57m) (Based on the trailing twelve months to March 2025).
Thus, Wesdome Gold Mines has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 4.5%.
Check out our latest analysis for Wesdome Gold Mines
Above you can see how the current ROCE for Wesdome Gold Mines compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Wesdome Gold Mines for free.
The Trend Of ROCE
The trends we've noticed at Wesdome Gold Mines are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 37%. Basically the business is earning more per dollar of capital invested and in addition to that, 177% more capital is being employed now too. So we're very much inspired by what we're seeing at Wesdome Gold Mines thanks to its ability to profitably reinvest capital.
Our Take On Wesdome Gold Mines' ROCE
In summary, it's great to see that Wesdome Gold Mines can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 23% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
On a separate note, we've found 1 warning sign for Wesdome Gold Mines you'll probably want to know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.